Congress will need to act soon to extend the authorization of the nation’s highway and transit programs, set to expire May 31, 2015.  U.S. Department of Transportation Secretary Anthony Foxx has recently reported that the Highway Trust Fund (HTF) will likely become insolvent in late July or early August, but use of these funds beyond the expiration date would require Congress to pass an extension to authorize use of the funds.  In response, the Senate introduced a bill yesterday, and the House introduced a bill this morning, both of which provide a short-term extension through the end of July when the HTF is scheduled to become insolvent.  These measures are anticipated to gain passage in both chambers next week to avert a shutdown of our federal surface transportation programs.  

While Members of Congress on both sides of the aisle have spoken in favor of a multi-year surface transportation bill, they have not been able to agree on a revenue source to pay for a extension of the HTF.  Assuming passage of these extension proposals, Congress will be provided an additional two months to reach an agreement over passing another extension, although the length of such an extension will continue to be of considerable debate due to the costs.  It’s important to note that neither of the HTF extension proposals contain any new revenues – they merely authorize the use of existing funds beyond the current expiration date.  To fund the previous short-term HTF extension, Congress transferred approximately $11 billion from the General Fund which was offset by a variety of other financing mechanisms.  Congress must now look toward other financing solutions to fund the next short or long-term extension.  Additional options for stabilizing the HTF include a restructuring of the Federal Tax Code, repatriation of corporate off-shore earnings, raising the federal gas tax, indexing the federal gas tax to inflation, and increasing oil exploration and production both offshore and on federal lands.

In the event an agreement over a short-term extension is unable to be reached, Secretary Foxx is prepared to implement cash management procedures to limit the amount and distribution of payments to states.  In the absence of federal funding assurances, states will be reluctant to issue or initiate new contracts, and funding reimbursements will be scaled back.